Why liberals are wrong about UK (and U.S.) austerity
Oh, now liberals are super interested in the British economy (or at least interested in something besides its state-run healthcare system). For 30 years, they've ignored the success of the Thatcherite tax cuts, privatizations and deregulation that allowed the formerly sick man of Europe to surpass many of its neighbors. In 1980, for instance, British GDP per person was 5% smaller than Italy’s, 12% smaller than France’s, and 14% smaller than Germany’s. But by 2008, British per capita GDP was 12% bigger than Italy’s, 7% bigger than France’s, and the same as Germany’s. No applause from the left for the historic turnaround.
But liberals are positively riveted on what’s happening in the UK these days. Pundits like Paul Krugman point -- look, look, look! -- to the mild recession the nation is now experiencing as proof positive that Prime Minister David Cameron’s austerity drive is a massive mistake. Not that they really much care what’s happening in the UK, of course. They're just looking for domestic ammo as they argue a) Obama's stimulus was a success and we need more of it, and b) Republican budget-cutting plans would kill the "recovery" if implemented. Fear the Romney-Ryan plan!
A few observations:
1. Hey, liberals here actually liked the Cameron plan when it was first announced because it raised taxes, just like Obama wants to do now. The Cameron formula was 80% spending cuts and 20% tax increases. The tax hikes were the mistake — not the spending cuts — as they have been throughout Europe, a region quite likely at the tippy top of the Laffer Curve. Indeed, the government is scrapping the previous government’s hike in the top marginal rate to 50% from 45% because it didn’t raise any money.
2. Blame the austerity if you will, but the UK is playing in a pretty dodgy neighborhood these days. About half its exports go to the rest of Europe, which is in the dumps right now and could also use some pro-growth tax policy along with labor market and pension reforms. (Austerity Alert: Unemployment continues to fall in austerity-loving Germany.)
3. The point of the Cameron austerity plan is to avoid a debt crisis, not boost growth. And plans that focus on spending cuts rather than tax increases have been shown to be less damaging to growth than the reverse.
4. And there are worse things than a mild recession — such as a full-blown debt crisis. As the UK’s Reform think tank argues, “A major shift in fiscal policy would damage the Coalition’s fiscal credibility and risk increasing interest rates. ... Reform calculated that with current low bond rates the UK will be able to service its debt even with low growth. However, if yields on 10-year bond rates were to rise above 5% (similar to the levels currently in Spain) the government would have to run a surplus ... or else face a debt spiral.”
5. Neither Romney nor Ryan are proposing what Treasury Secretary Tim Geithner laughably warns would be a "lurch, prematurely, to extreme austerity, to severe austerity.” The Paul Ryan-House Republican budget, assuming CBO’s gloomy economic numbers, would cut debt as a share of GDP by about 10 percentage points to a still historically high 62% by 2022 — a decade from now! — while also sharply cutting taxes. Mitt Romney, as well, would shoot for balancing the budget by 2020. These are rather gentle glide paths, hardly crushing austerity.
If the Obamacrats wish to put forward the argument that what America needs is more temporary stimulus and more debt, they are welcome to it. Conservatives should argue what America needs is long-term tax reform that rewards investment and innovation, and spending restraint that puts the budget on a sustainable path and erases fears of massive tax hikes down the road.
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Comments:
Apr '12
Re: Why liberals are wrong about UK (and U.S.) austerity
I think we need a better term for these jaspers. Most of the terms we use are things that they have co-opted or coined to sound as if they are superior. Liberal? Stolen and twisted to mean the opposite of what it originally meant. Progressive? Maybe from the sense of believing in man's perfectibility and progress towards that goal. (This might be a religious belief or goal, but should stay out of politics.) But most of their "solutions" have been promoted for thousands of years and never, ever worked once. You call that progress?
Maybe "ahistoricals" since they seem to believe that history does not apply to them as it did to all of those who came before them and tried the same ideas?
Re: Why liberals are wrong about UK (and U.S.) austerity
Jimmy!
Mar '11
Re: Why liberals are wrong about UK (and U.S.) austerity
In the UK they call a spade a spade - these jaspers there are the Labour party, and don't try to hide their Socialism. They are proud of it, actually.
This exact debate has been going on in the UK since the "cuts" began when Mr Cameron came to power - actually, they are reductions in the increases. The Socialist leading the attack is the aptly-named Ed Balls, who was Mr Brown's right hand man leading the UK towards bankruptcy.
I was wondering how long it would take for the Democrats (aka Socialists) in the US to pick up the argument - question answered - thanks!
Nov '10
Re: Why liberals are wrong about UK (and U.S.) austerity
I'd like to hear James Delingpole's take on this. As usually happens, the cuts that Cameron instituted were largely illusionary, whereas the tax hikes were very real.
Re: Why liberals are wrong about UK (and U.S.) austerity
Delingpole is traveling down under this week (that's why we haven't done a podcast with him recently), but we'll try to get him to respond to this.
Nov '10
Re: Why liberals are wrong about UK (and U.S.) austerity
The self-appointed anointed?
Terminal utopians?
Arahant: I think we need a better term for these jaspers. Most of the terms we use are things that they have co-opted or coined to sound as if they are superior. Liberal? Stolen and twisted to mean the opposite of what it originally meant. Progressive? Maybe from the sense of believing in man's perfectibility and progress towards that goal. (This might be a religious belief or goal, but should stay out of politics.) But most of their "solutions" have been promoted for thousands of years and never, ever worked once. You call that progress?
Maybe "ahistoricals" since they seem to believe that history does not apply to them as it did to all of those who came before them and tried the same ideas? · 52 minutes ago
Re: Why liberals are wrong about UK (and U.S.) austerity
A couple of points: I know some of my conservative brethren in the UK are skeptical of the Cameron cuts, similar to the whole debate about referring to reductions in planned spending increases "cuts."
Second, these "liberals" are statists. When I think of "liberal," I think of openness, dynamism, progress, prosperity. I doubt any of those words apply to the UK National Health System.
Re: Why liberals are wrong about UK (and U.S.) austerity
Hey James, can I indulge in some paranoid thinking? No? I'm going to do it anyway. Isn't part of the drive to enlarge the government and the public sector a way to ensure that any suggested cuts, or any attempt to shrink government, will actually put lots of people out of work? At a certain point -- and I don't think we're there yet, but we should probably wait to see what happens in Wisconsin -- isn't government just too damn big to cut?
Sep '10
Re: Why liberals are wrong about UK (and U.S.) austerity
Spot on Mr. Long. As Mark Steyn said several years ago whilst mocking former Prime Minister Chretien's bizarre intonations:
"Datz da Canajun values"
Re: Why liberals are wrong about UK (and U.S.) austerity
Oh, I think there is something to that, just like Obamacare's subsidies and Medicaid expansion expands dependency on government.
Feb '12
Re: Why liberals are wrong about UK (and U.S.) austerity
Hi Jim! Nice to see you here.
Re: Why liberals are wrong about UK (and U.S.) austerity
Might I suggest, James that Krugman's criticism is a case of Caliban's rage on seeing himself reflected in the glass. Does he not realize that a) Cameron's comedy Coalition is not even cutting spending - merely the rate of increase in spending and b) that we're printing money with an enthusiasm which would make Ben Bernanke proud. We're all Neo Keynesians now, unfortunately. At least our political class are. That's why we're doomed, I tell you. Doomed!
Apr '11
Re: Why liberals are wrong about UK (and U.S.) austerity
You hit the nail on the head with your whole post, James, but I particularly liked this last paragraph.
We also need to be frank about spending restraint; it's impossible to enforce. As long as congress continues to binge-spend every year there is no permanent solution, only temporary ones that buy time by sacrificing our economic growth.
Re: Why liberals are wrong about UK (and U.S.) austerity